Simplistic debate on IFSC does no one any favours

Scaremongering about jobs and regulation harked back to Seán FitzPatrick comments


The taxpayer could be forgiven for being a little bemused at claims that jobs are at risk because of heavy-handed regulation of the banks.

Many of them will have just completed the paperwork involved in paying their property tax. It is the latest instalment in a five-year fiscal plan aimed at restoring the country’s solvency. Runaway lending by poorly regulated banks was a very significant contributory factor in our national bankruptcy. The bill for bailing them out currently stands somewhere north of
€60 billion and unemployment is stuck above 14 per cent for reasons that are not unrelated.

The public also knows that tougher regulation of the banks was a very big part of the recipe to fix this disaster. It was also a demand made by the external bodies that we turned to in the end for money.

To be told now by John Bruton and Michael Somers that we need less regulation of the banks is confusing, particularly given the trusted “elder statesman” status the two men enjoy.

Somers is something of a divisive figure. For many, he is one of the most talented public servants the State ever produced; for others, he was an overpaid plutocrat with a fondness for saying “I told you so”. Whatever your view, his emergence from the chaos on September 2008 – when he was earning €1 million a year to run the National Treasury Management Agency – with his reputation untarnished is no mean feat.

He is now at AIB where he is the Government-appointed deputy chairman and seems to escape – in public at least – responsibilty for unpopular moves by that bank, such as the recent interest rate hike ahead of the ECB cutting its rates.

Bruton has the prestige of being a former taoiseach and also an EU ambassador to Washington. He is currently president of IFSC Ireland – the representative body for the international banks – and thus something of a hired gun.

The point is that neither of them is a banker, as such, and both of them have an aura of probity. It means people listen to them. It is unfortunate then that they made such a poor fist of opening up what is an important debate.

Open goal
Their scaremongering about jobs in the IFSC and talk of bank licences being handed back was over the top, and in keeping with the worst carry on of the banking industry in the boom. It was also an open goal for deputy Central Bank governor Matthew Elderfield, which he gladly took. The outgoing regulator was quick to link their comments to similar comments by Seán FitzPatrick, remarking it was “not too long” since a banker had said that it was “time to shout stop; the tide of regulation has gone far enough”.

It was a comparison that neither Somers nor Bruton would relish and brought debate shuddering to a stop . So far, so normal, for what passes for public discourse here. It was a pity because somewhere underneath all of this there is a debate worth having, but it is far more nuanced than Somers’s and Bruton’s jobs argument or even Elderfield’s put down.

At its heart is a proper understanding of what sort of businesses are sustainable in the IFSC in the medium term. One very interesting development over the past five years or more is that the really big employers in the IFSC,such as Citi, are as much software companies as they are banks. Much of what they do centres around creating and servicing products that are sold by the wider bank.

As such,they are probably as worried about tax rates, the availability of skilled staff and intellectual property law as they are about regulation by the Central Bank.

It’s worth noting in this regard that the biggest foreign-owned financial services operation in the country – Paypal – is not even a bank and not regulated in any way.

These business are arguably the sort of financial services inward investment activities that we should be focusing on retaining and not the sort of mainstream investment banking operations such as Goldman Sachs, whose decision to hand back its Irish licence caused Somers such anxiety. They will always find the centrifugal pull of London hard to resist.

There may well be a case for less regulation of banks like Citi or State Street here, but it has to be made cogently and calmly. Trying to scare the public into supporting lighter regulation of the sector as a whole does nobody any favours, and Somers and Bruton little credit. After the last five years, the public deserves better.

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